Kelly warns pension providers must give value for money

Click to follow
The Independent Online

Providers of low-cost pensions and savings should not levy the maximum annual charge of 1.5 per cent unless they can prove they are offering advice about the products, the Government said yesterday.

Providers of low-cost pensions and savings should not levy the maximum annual charge of 1.5 per cent unless they can prove they are offering advice about the products, the Government said yesterday.

Ruth Kelly, the Financial Secretary to the Treasury, directed a clear warning to the fund management industry that the new - increased - cap of 1.5 per cent could not be justified if products were sold directly with no advice available to customers.

"If providers are not offering advice we would not expect them to charge over 1 per cent; 1.5 per cent is the very maximum we expect to see and we still expect to see some providers charge very much less than that," Ms Kelly told the Treasury Select Committee.

She was forced to justify the new level of charges after the Government climbed down over earlier plans to cap the cost of products such as stakeholder pensions at 1 per cent.

The Treasury revealed the new higher price cap earlier this month for the incoming range of simple products, aimed at encouraging those on low and middle incomes to save for their retirement.

The move came after a lengthy running battle with the pensions and savings industry, which argued that the earlier target of 1 per cent was too low to make the products cost effective to market.

The Treasury caved in after the first low-cost product to be launched - stakeholder pensions - was a flop. Very few in the target group took one out while many on higher incomes took advantage of the tax break they offered to buy stakeholders for their children or spouses.

Ms Kelly said she thought "long and hard" about the decision to raise the cap, stressing providers would have to reduce the annual charge from 1.5 per cent to 1 per cent after 10 years.

She admitted that because of the "complexity and opacity" of most traditional savings vehicles, consumers had little idea about what kind of deal they were getting and therefore had no power to influence the market to reform itself. But she maintained she was "optimistic about the future" due to a range of changes being driven through.

MPs also challenged Ms Kelly about the UK's record on cracking down on financial misdemeanours such as insider dealing. Jim Cousins, a Labour member of the committee, said: "Our system doesn't produce the rattle of the tumbrels that would change behaviour." Ms Kelly maintained it was important for the Government to preserve "an arm's length" relationship with the City's regulator, the Financial Services Authority. However, she said it had given a "high degree of attention" to pursuing companies and individuals who breached the rules.

Comments